AB Fagerhult (publ.)'s (STO:FAG) Upcoming Dividend Will Be Larger Than Last Year's

AB Fagerhult (publ.) (STO:FAG) has announced that it will be increasing its dividend on the 3rd of May to kr1.30, which will be 160% higher than last year. This takes the dividend yield from 0.9% to 2.4%, which shareholders will be pleased with.

Check out our latest analysis for AB Fagerhult (publ.)

AB Fagerhult (publ.)'s Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, AB Fagerhult (publ.) was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Unless the company can turn things around, EPS could fall by 4.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 50%, which is definitely feasible to continue.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was kr0.39 in 2012, and the most recent fiscal year payment was kr0.50. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that AB Fagerhult (publ.)'s earnings per share has fallen at approximately 4.6% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think AB Fagerhult (publ.)'s payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for AB Fagerhult (publ.) that investors should know about before committing capital to this stock. Is AB Fagerhult (publ.) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.